Treasury triples bond buy-back programme to $6bn

On Wednesday, the US Treasury Department announced plans to triple its bond buy-back programme to a maximum of $6 billion. This move aims to control long-term borrowing costs, which have been increasing due to rising Treasury yields. The increase in yields is linked to higher yields in Gulf states, where most currencies are pegged to the US dollar.

The Treasury previewed this action last month, with Secretary Scott Bessent describing the situation as a "fever" building in the bonds market. Yields on the 10-year and 30-year Treasury notes rose, while the two-year Treasury saw a similar increase. Despite the announcement, yields continued to rise after the news. The rise in yields is attributed to geopolitical tensions in the Middle East, specifically attacks on tankers in the Gulf by Iran and the US.

These attacks have led to a surge in oil prices, with Brent crude exceeding $100-a-barrel again. The tensions also force Gulf states to borrow more money to compensate for lost oil revenue due to the closure of the Strait of Hormuz and Iranian attacks on energy sites. While some Gulf sovereigns' spreads have tightened or moved little, a prolonged conflict could widen those spreads, increasing financing costs for the region.